We apply the reference point approach to contracts to the modelling of a human-capital based firm. First a model of firm scope is offered which argues that the organisation of a human-capital based firm depends on the “types” of human capital involved. Having a homogenous group of human capital leads to a different form than that of a firm which involves a heterogenous group of human capital. Second a simple model of a human-capital based firm is discussed. Three organisational forms are considered: an investor owned firm, a labour owned firm and a market transaction involving the use of an independent contractor. Results are given that show when each of these forms are optimal. The effects of a firm’s size and scope on organization are considered as is the question of Why are there conversions to investor ownership?
Got to say I really don't like the paper, it just doesn't work for me. Will have to think more about how to improve it.
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